Metropolitan News-Enterprise


Friday, June 17, 2022


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C.A. Says Surety Sued for $3.4 Million Wasn’t ‘Prevailing Party’ Though Award Was for $1

Opinion Says Non-Award of Attorney Fees Did Not Constitute Abuse of Discretion


By a MetNews Staff Writer


The surety on a performance bond is not the “prevailing party” in litigation in which the City of Los Angeles sued it and the contractor whose performance it was guaranteeing for $3.4 million and obtained a judgment for only $1, the Court of Appeal for this district has held.

Justice Gordon B. Burns of the First District’s Div. Five authored the opinion, filed Wednesday. It affirms an order by San Mateo Superior Court Judge Danny Y. Chou.

The City of Los Angeles sued John Russo Industrial Sheetmetal, Inc., with which the Department of Airports had contracted for the purchase of four firefighting trucks, and U.S. Specialty Insurance Company, the surety. Two trucks that were delivered were defective, the city asserted, seeking a return of what it paid and damages for a failure to perform.

Fee-Shifting Provision

The contract between the city and John Russo called for an award of attorney fees to the prevailing party in any litigation.

John Russo also sued the city. The judgment was in favor of the city.

In declaring that Chou did not abuse his discretion in making no fee award, Burns wrote:

“In comparing the parties’ relative success, the trial court reasonably concluded that they fought to a draw. U.S. Specialty lost on its arguments that the city breached the contract, lost on its arguments that John Russo did not breach, and technically lost on damages although not to a meaningful degree. The city obtained a pyrrhic victory: it won a judgment on liability and avoided a loss, but it received only nominal damages. The outcome was mixed. The trial court’s conclusion is well within the bounds of reason.”

Joined at Hip

He went on to say:

“Although U.S. Specialty now insists that the city’s $3.4 million damages demand was ‘the only claim that mattered,’ the trial court reasonably concluded otherwise. It correctly observed that U.S. Specialty was joined at the hip with John Russo on both the breach and the damages issues. A surety’s liability is commensurate with that of its principal, and it is entitled to assert all the principal’s defenses and set-offs….Had John Russo and U.S. Specialty won on their breach contentions, U.S. Specialty would have had no liability on the performance bond.”

The jurist continued:

“Had they won on John Russo’s breach claim, but lost on the city’s claim, any damage award to John Russo would have set-off or eliminated a damage award to the city. Accordingly, U.S. Specialty and John Russo were represented by the same counsel at trial, submitted a joint trial brief, and agreed to joint jury instructions rendering U.S. Specialty liable if John Russo was found liable. U.S. Specialty’s decision to litigate in lockstep with John Russo made sense, but it also supports the trial court’s conclusion that, for both of them, success on the breach claims was an important objective. We reject U.S. Specialty’s argument that the court was required to focus narrowly on the nominal damage award and to discount its losses on breach.”

The case is City of Los Angeles Department of Airports v. U.S. Specialty Insurance, 2022 S.O.S. 2582.


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